So, to what extent could coalition Government policies contribute to high energy bills?

Paying out to big players

One of the themes of cross-party discussions on energy has been the importance of stimulating competition.

Yet in practice the coalition’s complex series of reforms to the power market have tended to reduce competition and increase Government price-setting and largesse – largely not for the new players, but for the existing power players.

There are two main mechanisms that are problematic in this respect: the capacity market and Contracts for Difference.

1) Capacity market windfall

The capacity market has paid quite a lot of large electricity suppliers for keeping their generating stations going when that’s what they were planning to do anyway. In particular old nuclear stations were almost certainly going to carry on as long as they could. But they’re now being paid to do so as well.

Meanwhile, coal stations are the biggest problem for the climate, and getting coal out of the power system is widely agreed to be (at least on the supply end of the power equation) the cheapest way of improving our environmental performance.

The Capacity Market is now going to pay them to keep UK coal plants open, whilst the Carbon Floor Price is taxing them to close them down. Consumer lose both ways. I unusually find myself agreeing with Head of Centrica Sam Laidlaw on the ‘inherent paradox’ in this situation.

2) Contracts for Difference supporting big energy firms – and Hinkley

The Contract for Difference (CfD) support mechanism really suits big players, who can keep out the smaller players and so maintain the existing system that has been responsible for the prices we see. There is considerable complexity, little transparency over contract allocation, and considerable risk in investing for energy development upfront – a situation where the risks are best dealt with by large players with legal and public affairs teams.

Failing to help citizens lower their bills

The best way for consumers of energy to lower their bills is to use less. Not by shivering in the dark but by using the gas, electricity and heating fuel more efficiently. This is not only a social good but should cut emissions too. How well have the coalition done in encouraging energy savings?

3) Green Deal ‘disappointing’

The Green Deal – the Government’s flagship project for efficiency – has been a ‘disappointing failure’ according to Commons Energy and Climate Change Committee, with poor planning, communications and implementation.

4) ECO cut

Another scheme, the only publicly funded source of energy efficiency work on homes, called ‘ECO’ was cut in a move that PM Cameron alledgedly said constituted ‘cutting the green crap’. This happened when the Government were on the back-foot politically after Ed Miliband pledged to freeze consumer energy prices.

Keeping the UK system stuck in the past

Not acknowledging the economic and security threat of climate change means not thinking ahead to a new way of doing energy. The future will not look like the past. There will be cheaper and better ways of getting energy services, unless UK policy locks us into the old way of doing things.

The coalition’s Green Investment Bank has recently announced £200m of funding for community energy schemes, but it is not fulfilling its full potential. The GIB could do a lot more if it was given fully-fledged borrowing powers or if it was expanded into a broader state investor similar to green investment structures like Germany and France.

A number of major banks are now arguing that the future will be a decentralised smart grid. UBS are the largest private bank in the world and are advising that large-scale power stations (such as the ones supported by the capacity market and nuclear CfDs) will be rendered redundant. Similar warnings about the rise of decentralised systems have come from Deutsche Bank, HSBC, Barclays and other private banks advising investors on value for money.